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Still recovering from the punishment investors dished after it reported quarterly results two days ago, Walgreen (WAG) announced Thursday it is buying online retailer drugstore.com (DSCM) for an enterprise value of about $409 million, and an equity value of approximately $429 million, or $3.80 per share -- a 113% premium over the company's Wednesday's close.

"Our acquisition of drugstore.com today significantly accelerates our online strategy," said Walgreen President and CEO Greg Wasson. "This acquisition offers a unique opportunity that will provide us immediate access to more than 3 million savvy, online loyal customers, and will allow us to move even closer to our existing customers through relationships with new vendors and partners, adding approximately 60,000 products to our already strong online offering."

Other sites operated by drugstore.com that Walgreen is getting in the deal include Beauty.com, SkinStore.com and VisionDirect.com. Drugstore.com, which will maintain separate branding of its websites after the transaction closes, had more than $456 million in sales in 2010, and ranked as the eighth-largest e-tailer in the U.S. according to Internet Retailer magazine. Walgreen had $67 billion in sales.

Walgreen anticipates the transaction to be dilutive to fourth quarter 2011 earnings by approximately 3 cents per share due to transaction-related one-time costs, and will continue to be dilutive to earnings by 3 to 4 cents per share in fiscal 2012, and 1 to 2 cents per share in fiscal 2013.

While Walgreen's profit climbed 10% in the last quarter and its same-store sales have been rising in recent months, the retailer said it expects pressure on earnings from government agencies' cutbacks. Walgreen operates nearly 7,700 retail pharmacies, and this latest acquisition builds on that renewed retail focus and its attempt to boost its online presence.

"Walgreens has been focusing on organic growth for years, but hit a wall with this strategy and realized they had to do it via acquisition," Toon Van Beeck, senior analyst with IBISWorld told DailyFinance. "The acquisition of drugstore.com is in line with its focus on its core business, and gives Walgreen a competitive edge against CVS (CVS) and Rite Aid (RAD)."

Walgreen indeed has also been offering a smartphone application that includes flu shot and store locators, and Express Refills by Scan, which allows consumers order refills instantly by scanning the bar codes on their prescription bottles.

"Some will have questions about the price -- a 110% premium," Van Beeck said. "While this is out of line with previous such deals, it's a small acquisition, which Walgreen can pay with cash. Walgreen will be able to leverage the online store and come back with online market sales and compete with the likes of Amazon.com (AMZN), Walmart (WMT) and Procter and Gamble (PG)."

If Walgreen's wants to make more money they should try hiring happier people or at least people who can fake it really well and while they are at it, people with some brains. They are so rude and make so many mistakes in thier pharmacy it isn't funny. They can't count pills and half the time I get a pill that is broken and don't have the other piece. Walgreen's is one of the worst pharmacy's I've ever used.

Walgreen's is facing increased costs at old business model, new stores look likefast food cafeteria or 7-11 stores.............cannot compete with Dollar and others on general merchandise so shift is going to eStore concept over time !Inflation is hitting retail hard, fixed overhead is difficult for general merchandise points.................no real economic growth will challenge large store chains.